Costa Mesa, facing $30-million deficit in 2020-21, contemplates more cuts

Still reeling from a current coronavirus-related budget shortfall of up to $18.5 million, Costa Mesa officials were told Tuesday that the city could face a $30-million deficit during the next fiscal year from revenue losses and increased expenditures.

Staff projected continued closures of sales tax-generating businesses coupled with a steep decline in hotel occupancy rates. These changes could bring the general fund down to $120.6 million, far below the $150.4 million in expenditures anticipated for the 2020-21 budget.

Carol Molina, the city’s budget and purchasing manager, estimated Costa Mesa could expect to see a $4.8 million, or 50%, reduction in transient occupancy tax receipts and another $8.9 million loss to sales tax revenues, among other deficits.

To offset the losses, the city may consider decreasing expenses, including $6 million in staff furloughs. City Council members in April already approved furloughs and layoffs for part-time employees to find $300,000 in savings.

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Department heads will be asked to plan for 5%, 10% and 15% cuts across the board, which could help the city save an additional $6.4 million to $19.3 million.

“These are pretty significant numbers for most of these departments, if not all,” Molina said. “They’re already pretty tight as it is.”

The council might also consider another $3.9 million in cuts into capital improvement projects, on top of the $6 million in reductions approved to bridge the current fiscal year’s gap.

Councilman Manuel Chavez said given the many projects that were postponed or canceled, he preferred not to push needed improvements off another year.

“[Capital improvement projects] are things people are most worried about,” Chavez said. “It just seems like we’re waiving it these past two years — we might have to look at that more thoroughly.”

While city staff are hopeful the $3 trillion HEROES Act, a plan to help state and local governments weather revenue shortfalls, will be passed by Congress, City Manager Lori Ann Farrell Harrison recommended the city take a balanced approach to reducing expenditures and drawing from reserve funds in the meantime.

Officials already approved pulling $7.5 million from reserves and other funds, including taking $4.25 million from its declared disaster reserve pool, to help with the current shortfall. About $9.87 million remains in that fund.

“If we cut too much, it’s going to be very difficult to build back, when the economy’s back, and to provide appropriate services to the public,” Farrell Harrison said. “But, of course, if we don’t cut enough, we’re going to be digging a bigger hole.”

Farrell Harrison said staff would return to the council in early June with projected reductions. Molina said she hoped to have the budget ready for adoption by the council’s June 16 meeting.

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